BE Aerospace New Awards

B/E Aerospace was awarded 2 new contracts yesterday for their lavatory oxygen systems. The contracts were awarded by Boeing and Airbus. They will be utilized on all narrow bodied planes currently in production beginning in 2014. Additionally, the system will be available for retrofit on older narrow body planes beginning in 2014. The contracts are for approximately $100 million each. We continue to maintain our BUY rating on B/E Aerospace (BEAV).

Spirit Airlines Traffic

Spirit Airlines (SAVE) reported revenue passenger miles (air traffic) for the month of May this week. RPM's increased 28.5% YOY, and available seat mile increased 25% YOY. This shows that Spirit is continuing to show strong growth, and we reaffirm our BUY rating on the stock.

Google Acquires Crowdsourced Navigation App "Waze" Expanding Into Mobile Mapping

Google has acquired Waze, a high tech Israeli navigation software company for $1.03B. Waze’s smartphone application combines GPS capabilities with social networking features, which allows real time updates to traffic reports, road congestion, directions, speed traps and more by its intelligent use of crowdsourcing big data. UASBIG views this acquisition positively as a sale to Google can give Waze a greater ability to monetize its customer base, which currently consists of nearly 50MM users. Also the move is likely to lead to navigation updates to Google’s current platform which will further extend Google’s lead over rivals- most notably Apple in the navigation space. The stock was relatively flat off the news and is trading currently around the levels we purchased it. We reiterate our buy thesis for Google with conviction that this acquisition will help increase advertising revenue, which was the prominent catalyst to our investment thesis. 

Yum! Brands

A report released today from the China Cuisine Association shows that revenue for Yum! Brands Inc. in China was up 24% in 2012, to almost $6.9 billion. This amount, according to the report, represents more than 50%of the company's total revenue.

Shares closed up $3.09, at $71.12. This represents a 4.5% rise. The report supports our investment thesis and we reiterate our BUY rating.  

Joy Global Inc. Q2 Earnings

Joy Global Inc. released earnings on Thursday May 30^th, reporting an EPS of $1.73, beating consensus of $1.56, with revenue falling to $1.36 billion from $1.54 billion. Backlog for the company fell to $2.2 billion from $2.4 billion, with net sales decreasing by 12% vs. the second quarter a year ago.

A decreasing backlog is the major concern for Joy, as it questions potential revenue that will be streaming into the company in the coming quarters. This is showing that they are not acquiring new projects, which is something to be monitored very closely in the future. Another problem for Joy is its reliance heavily on their sale of coal, which has not been doing as well as natural gas. Joy believes that the future still is coal, and they expect an increase of 60 million to 70 million tons this coming year, but I think those numbers are ambitious due to natural gas emerging in the market, taking up 30% of the market already and still growing.

           

            In China, Joy has struggled. The company is having trouble gaining traction, as the growth in electricity slowed to 5%, less than half the rate that it was. China is continuing to produce great amounts of coal, but Joy is having an excess supply that they are still looking to sell off, keeping the price low. Right now, they are selling the coal near marginal costs.

            Joy has readjusted their forecasts for the rest of the year. They believe that they are in a correctional period right now, and are making adjustments accordingly. They reduced earnings to between $5.60 and $5.80 and revenue between $4.9 billion and $5 billion, cutting higher estimates from the beginning of the year. After being up the day of earnings being reported, the company is down 6%. I believe that we need to monitor Joy within the portfolio right now, as it could have a potential to increase its backlog in these coming quarters, but our position needs to be watched closely.

Target Reports Disappointing First Quarter

Target Corporation released its first quarter earnings May 22^nd which missed expectations as a result of soft sales in seasonal and weather-related categories.  Target had first quarter revenues of $16.71 billion, consensus was at $16.78 billion. Net earnings fell 28.5% to $498 million, with adjusted GAAP earnings per share, excluding losses to early debt retirement of $0.41 and gain from sale of their credit card business, at $0.82, down 5% from last year’s outstanding performance. Earnings came in short of consensus estimates of $0.85 per share. Targets gross margins increased 50 basis points to 30.7%, from 30.2% in the same period last year, due to changed vendor agreements and the company’s growth strategies.

Target also opened its first 24 Canadian stores in this first quarter and plans to open 124 stores in Canada by the end of its fiscal year. Target’s mobile traffic and sales continue to grow at a triple-digit pace, with mobile traffic representing more than 30% of our digital traffic in the first quarter.  During the earnings call Targets CEO and chairman, Gregg Steinhafel stated, “While we are disappointing in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target's long-term growth." For the second quarter the company expects adjusted EPS of $1.09 to $1.19 and full-year adjusted earnings are expected to come in between $4.70 and $4.90 per share, a 15 cent reduction from Target's previous guidance.

Factoring in a 4% fall in Wednesday's trading session, attributed to both an extremely bearish day in the market and a bad quarter release, the market values Target at $44.0 billion. This values the company at merely 0.6 times annual revenues and 15 times last year's earnings. Target currently pays a quarterly dividend of $0.36 per share, for an annual dividend yield of 2.1%. One poor and expected quarter should not be of concern to us, Target Corporation has seen steady long-term growth in the past and I expect it to continue on this path in the future.  

- Kristen Pfaffe

Foot Locker (FL) - Earnings 5/24

Foot Locker reported earnings on 5/24 and beat estimates in both revenue and EPS.  They report Q1 EPS of $0.91 which beat estimates of $0.88 and represented a growth from Q1 2012 of 10% representing the highest quarterly profit ever achieved from Foot Locker Inc. While a revenue growth of 3.8% to $1.64B was in line with estimates of $1.63B. Foot Locker is down 4.99% on the basis of comparable store sales being "flat" this month as well as skepticism moving forward for the company.

Seeing big gains in the Direct-to-Customer business which were up 18.2% in comparable sales while stores were + or - 5% in gains except for the Kids Foot Locker with gains of almost 20% this quarter.  Apparel has seen a mid-single-digit increase in sales overall with a strong double digit gain in the digital sales all across men, women and kids.  Internationally, apparel sales were down however with an improvement in margins.

Store openings and closings had cancelled each other out with an overall slight contraction of store numbers at 3,321 which is down 14 stores from the end of the year.  Holding a strong gross margin at 34.2% has shown an increase of around 20 basis points for the company. Receiving a slightly better tax rate along with an overall lower growth in costs than seen in sales, has led Foot Locker to achieve their highest quarterly earnings ever as stated before.

Ending with $1.1B in cash on the balance sheet as the first quarter is usually the peak of their cash flows seasonally and declining here going forward until the year end holidays, we will see this years cash balance go towards the acquisition of Runners Point Group (RPG) and also a $600 million share buyback program beginning in Q2.  Overall they are expecting a margin improvement of 20 to 30 bps due to sales growth alone

RPG is company that is based out Europe, mainly in Germany.  With this acquisition, Foot Lockers main exposure in Europe will change form Italy over to Germany which I feel is a huge boost for outlook on their European segment.  I feel this is due to the overall view on Europe and Germany being seen as a much stronger area of Europe compared to Italy currently.  Having an established management and store line, as stated by FL's CEO Kenneth Hicks, it isn't a company that is broken and needs to be fixed but rather one that they can expand off of the solid foundation set by the company already.

Lady Foot Locker has put a significant strain on the company and they have been rebuilding this segment to gain market share of 20-30 year old actively athletic women.  They have seen increase in sales of remodeled test stores and doors of Lady Foot Locker which shows they are stepping foot in the right direction and this can be a big booster to their sales going forward as it is in a depressed state currently.

So with the changes and revamps of current segments of Foot Locker, their acquisition of Runners Point Group, and their greater exposure to digital sales, I see Foot Locker as a strong player going forward in the consumer industry however there are certain risks as we see them take on the acquisition, the remodeling of Lady Foot Locker and Q2 sales being high enough to counter balance the usual Q3 slow down.  A position in Foot Locker is still seen as being justifiable but will be monitored stringently.


-Michael R. Rodrigues